M&A Transformation Is Rising in Italy

In Italy, according to a report from Mergermarket, the first nine months of 2021 have been the strongest start for mergers and acquisitions (M&A) activity in over a decade. A recovering economy, linked to progress in the COVID-19 vaccination campaign, economic reopening and a new prime minister have all helped keep the pipeline active. Deal value is up 144 percent, volume is up 30 percent and transactions are up 60 percent, all YOY. Investment abroad has increased as well.

The strong growth in values directly links to some important megadeals closed in Q3. That, and a bump in cross-border transactions, has created a climate of confidence here. It appears globalization is once again becoming the protagonist of the economy after a sharp slowdown.

Transformation is the sector driver

The SS&C Intralinks Deal Flow Predictor for Q1 2022 give us a great glimpse into the sector forecast. The first nine months show high activity in the Industrial & Consumer Markets macro-sector. Technology, which is strong globally, runs a very close second (with 113 announced deals so far this year), just behind Industrials. Financial Services is another leader, with Telecom, Media & Entertainment (TMT) performing notably as well.

In addition to the megadeals involving the TLC sector (e.g., the infrastructure of transmission towers and the development of fiber in Italy), leading companies in the IT sector are teaming up with innovative software and tech-solutions companies. In many of these cases, this M&A activity represents a form of technology transfer here.

Notable deals have been executed so far, with more awaiting finalization in the Paytech and SS&I sectors. Overall, the first 10 operations in the pipeline could bring an additional 33 billion euros in value. 

IPO rain is coming

After years of inactivity, the Milan Stock Exchange is once again attracting companies. Numerous IPOs are planned between the end of 2021 and 2022. Epta (refrigerators), Technoprobe (semiconductors), Lima Corporate (healthcare prostheses), De Nora (electrochemical plants) and Fedrigoni (paper) are expected to make their debuts on Aim Italia.

The relationship between the stock market and companies in Italy has always been love/hate. But, in recent years, economic and financial difficulties at a global level have reduced Milan Stock Exchange prices to the bone. Now, the post-pandemic surge of global economies is helping companies here put this era behind them, and it’s all aided by the expansionary policies of governments and central banks ... and a newfound love for equities.

The watch-out list

Despite the bright outlook for Italy going into Q1 2022, some issues could hamper momentum. Digital transformation, while beneficial to M&A in many respects, may make origination complex. Especially if origination starts remotely and the asset ends up being worse than expected. For deals done during the height of the pandemic, integrating new companies into portfolios may be hard; post-merger acquisitions may have followed a path that was not initially forecasted in the company’s strategy.

Rising interest rates, more competition for energy and renewable assets, and highly liquid private equity (PE) funds that tend to buy at higher prices may all factor into any growth hiccups for the coming year.